DCF Analysis - the analysis of article

Andy and Shashi have left some comments on the first part of my article on DCF analysis - saying that they have not understood anything and they also feel comfortable with the simple plus/minus calculations.

They are ABSOLUTELY RIGHT - though it is simple mathematics, even then the majority of investors (including IT engineers who are supposed to know maths to a good extent) find it difficult to understand. If they do understand, they dont have time to make calculations - they probably want to shield themselves from the bad news.

But unfortunately, the bitter truth is that method listed in this article is the truth and this is the correct way of calculating profit and loss.

In all my articles, I've always stressed about the ignorance that people have in understanding the calculations. All they end up doing is making ignorant bets in the market. Even if they are in loss, they don’t realize it. They just look at 1 or 2 profitable trades and believe that they are in big profit. I was also one among them before my finance studies – I was working as a programmer, also betting on stocks and making incorrect plus/minus calculations and thinking that I am earning extraordinary money – all thanks to the bull run in the Indian stock markets. Under the same false impression of making good profits, I left my well paid job thinking that I can make enormous money in the markets, did a very costly masters course - just to realize that we cannot really make any returns better than what is offered by risk-free bank accounts.

My articles are aimed at providing the true picture. That's the reason I include every fine detail in my articles (including formulas and examples)

If the readers still want to ignore the things - it is left upto them. Sometimes, I feel what is this euphoria game going on? People invest or trade to earn more – but do not want to learn even the basics of how to calculate profits and losses.

Here is another example:

Casinos are legal business in US and US citizens, visitors, tourists, etc. are frequently visit casinos. Despite knowing very well that no one can make any money from betting in Casinos, they still go there and loose money.

The reason - they go there for leisure time and do not mind loosing money. Nobody is knowledgeable about the mathematics of how and why casinos are always in profit and why the people visiting casinos are always the loosers. (It’s actually due to rules set by casinos and due to a probability law called “Law of large numbers”).

Today, information is available for free. Blogs like mine, and other sites have enough details about the how and why of profit making calculations. Still people are not willing to accept the basic facts and learn. Is the situation any better than visiting the casino and loosing money?

To me, it seems even worse than the casino. Atleast in a casino, you visit occasionally, and loose only a limited sum of money. With access to internet and phone - people bet with stocks day and night. Hardly anyone knows whether they are doing right or wrong - whether they are in profit or loss.

All they want to do is live under the false impression that they are making better profits than what is offered by bank accounts.

Anyways, I publish articles with an aim to expose the true colors or the stock market, and I will continue doing so. I attempt to include true examples and historical data to backup my explanations. I have been through that ignorant stage before my masters studies, so I know that it is difficult to digest these contrarian views. I am honest here because before my finance studies I also used to read only the goody-goody articles and ignore the things that occasionally used to come up telling me that there is no way one can make extraordinary money. I also use to bet my money in stocks, calculate the profits using simple plus and minus and keep myself happy with the false impression of making better returns than bonds and banks accounts.

Anyways, It is left to the readers to realize it or not. At the depth of my heart, I know that everyone has a businessman inside us and this businessman inside us will never allow us to realize the truth. That's why I always say, we are doing nothing better than betting in the stock market like people visiting casinos and willing to loose money. Lucky if they win, leisure if they loose.

Keep betting, Choice is yours!

All the best!

Have questions, please read the comments and post your views and queries in the comments section which helps in open discussion and avoids duplicity of questions.

You may be interested in reading my previous articles. Here is the link to Table of Contents in a chronological order.